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Economic Bias of Weather Forecasting: A Spatial Modeling Approach

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Author Info
Nejat Anbarci () (Deakin University)
Eric Floehr () (Intellovations, LLC)
Jungmin Lee () (Florida International University)
Joon Jin Song () (University of Arkansas)
Abstract

The value of accurate weather forecast information is substantial. In this paper we examine competition among forecast providers and its implications for the quality of forecasts. A simple economic model shows that an economic bias geographical inequality in forecast accuracy arises due to the extent of the market. Using the unique data on daily high temperature forecasts for 704 U.S. cities, we find that forecast accuracy increases with population and income. Furthermore, the economic bias gets larger when the day of forecasting is closer to the target day; i.e. when people are more concerned about the quality of forecasts. The results hold even after we control for location-specific heterogeneity and difficulty of forecasting.

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File URL: http://www.deakin.edu.au/buslaw/aef/workingpapers/papers/2008_12eco.pdf
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Publisher Info
Paper provided by Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance in its series Economics Series with number 2008_12.

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Length: 43 pages
Date of creation: 22 Oct 2008
Date of revision:
Handle: RePEc:dkn:econwp:eco_2008_12

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Related research
Keywords: Weather Forecasting; Extent of the Market; Forecast Verification; Accuracy; Bias; Spatial Autoregressive Model;

Find related papers by JEL classification:
C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
H4 - Public Economics - - Publicly Provided Goods
L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
L8 - Industrial Organization - - Industry Studies: Services

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Craft, Erik D., 1999. "Private Weather Organizations and the Founding of the United States Weather Bureau," The Journal of Economic History, Cambridge University Press, vol. 59(04), pages 1063-1071, December. [Downloadable!]
  2. George J. Stigler, 1951. "The Division of Labor is Limited by the Extent of the Market," Journal of Political Economy, University of Chicago Press, vol. 59, pages 185. [Downloadable!] (restricted)
  3. Weitzman, Martin L, 1994. "Monopolistic Competition with Endogenous Specialization," Review of Economic Studies, Blackwell Publishing, vol. 61(1), pages 45-56, January. [Downloadable!] (restricted)
  4. Roll, Richard, 1984. "Orange Juice and Weather," American Economic Review, American Economic Association, vol. 74(5), pages 861-80, December. [Downloadable!] (restricted)
  5. Ehrbeck, Tilman & Waldmann, Robert, 1996. "Why Are Professional Forecasters Biased? Agency versus Behavioral Explanations," The Quarterly Journal of Economics, MIT Press, vol. 111(1), pages 21-40, February. [Downloadable!] (restricted)
  6. Alberto F. Ades & Edward L. Glaeser, 1999. "Evidence On Growth, Increasing Returns, And The Extent Of The Market," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 1025-1045, August. [Downloadable!] (restricted)
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  7. Sean D. Campbell & Francis X. Diebold, 2005. "Weather Forecasting for Weather Derivatives," Journal of the American Statistical Association, American Statistical Association, vol. 100, pages 6-16, March. [Downloadable!] (restricted)
    Other versions:
  8. Lung-Fei Lee, 2004. "Asymptotic Distributions of Quasi-Maximum Likelihood Estimators for Spatial Autoregressive Models," Econometrica, Econometric Society, vol. 72(6), pages 1899-1925, November. [Downloadable!] (restricted)
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